Genting Malaysia near-term prospects clouded by higher costs

The late Lim

KUALA LUMPUR: CIMB Equities Research sees Genting Malaysia’s near-term outlook clouded by higher costs as it retains its FY17-19F earnings forecasts.  

The research house said on Thursday it is expecting the group to chart earnings growth of 24% on-year for FY18F on the back of normalising VIP hold rates as well as gaming volumes for its casinos in Malaysia. 

“Nonetheless, we retain our Hold call as we think that Genting Malaysia’s short-term earnings growth from the new Genting Integrated Tourism Plan (GITP) has been priced in its valuations at 9x CY19F EV/EBITDA (in line with Genting Malaysia’s 10-year EV/EBITDA mean). Our RNAV-based target price of RM5.45 remains unchanged,” it said.

CIMB Research recently met up with the group to discuss Genting Malaysia’s near-term earnings prospects, which mainly centered on the timeline for the opening of its multiyear renovation and development of the GITP project as well as key strategies for 2018. 

“In our view, we think that the escalating operating and depreciation costs could outpace Genting Malaysia’s revenue growth from its new facilities in the near term, thus putting pressure on margins, at least for 1H18,” it said.

The research house said following lacklustre earnings over the past few quarters (due to a poorer VIP hold rate percentage), it believes that there could be a sequential improvement in the earnings in 4Q17. 

This is on the back of the normalisation of VIP win rates, tracking closer to its theoretical rate of c.2.5-3% and seasonally higher business volumes for both the VIP and mass market due to year-end holidays and festivities.

To recap, 3Q17 VIP volumes were up “double-digit” while non-VIP volumes were up “single-digit” quarter-on-quarter.

Genting Malaysiais aiming to re-open part of its indoor theme park (closed since April 2017), which will feature 18 new rides, before the 2018 Chinese New Year festivities (in mid-Feb). It will also be fully operational by end-1H18F. 

Nonetheless, the group still thinks that the catalytic crowd puller for its non-gaming assets would be its 20th Century Fox outdoor theme park, which will be ready to open by end-2H18F. 

“Going forward, we think that the latter could further boost visitor arrivals and as such, casino visitations and revenues.  

“Over the past few years, Genting Malaysia has focused more on rewarding existing RWG members (which typically carry higher yields) rather than foreign visitors, particularly Chinese tourists. 

“This has proven effective as 3Q17 mass market volume grew c.10% yoy (from flat to 1% over the past few quarters). Nonetheless, Genting Malaysia’s has shared that it will begin ramping up its efforts in marketing to Chinese tourists by 2H18, leading up to the opening of its outdoor theme park which should drive more overall foot traffic,” it said.